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Peter Pontuch- Housing market surveillance #housingfinance

Housing Europe
13 Nov 2014
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Peter Pontuch- Housing market surveillance #housingfinance

  1. Housing market surveillance Peter Pontuch DG Economic and Financial Affairs European Commission "Housing Finance" conference, Brussels, 5 November 2014
  2. 2 The crisis as a wake-up call Better enforcement of rules Focus on debt developments in addition to the deficit Actions for Stability, Growth and Jobs Economic Governance • Compliance with the Stability and Growth Pact did not guarantee overall macro-financial stability (e.g. Spain, Ireland). • Large macro-financial imbalances accumulated ahead of the crisis, without efficient surveillance procedures. • Unwinding of such imbalances contributed to unprecedented depth of recession and weighed heavily on public finances. Fiscal Governance • Limits of the preventive arm • Limits of the corrective arm Crisis resolution mechanisms • Insufficiency of existing mechanisms • No existent instrument to anchor market expectations
  3. Macroeconomic imbalance procedure (MIP) Context: Enhancing economic governance in the EU and the euro area (the 'Six-pack') Macroeconomic surveillance New regulation on prevention and correction of macroeconomic imbalances 3 Enforcement New regulation on effective enforcement of macroeconomic surveillance Sanctions in case of persistent inaction/insufficient action Fiscal surveillance - Prudent fiscal policy - Debt criterion - Minimum standards for fiscal frameworks Enforcement New regulation on effective enforcement of budgetary surveillance Stronger incentives & sanctions
  4. Why is housing a central topic in MIP?  Links between housing markets  credit  4 construction  current account and competitiveness  Broad implications of a housing market correction  Impact on consumption and investment  Banking sector fragilities and restricted credit to the economy  Increased economic and social distress  Challenge: grasp housing market incentives in their entirety to explain macroeconomic developments and to formulate country-specific recommendations.
  5. Relevant institutional incentives 1/2 • Mix of both • Supply elasticity • Demand shifts • Demand shifts Tax Treatment Prudential Policy and Mortgage Market Features Rental Market Land Regulation
  6. 6 Relevant institutional incentives 2/2  Split countries into L/M/H demand incentives for home-ownership  'High incentives' group experienced higher increase in household leverage and house price misalignment in the previous housing cycle. Household sector leverage 2000-2008, p.p. change House price misalignment 2008, % Source: European Commission (2014), "Institutional features and regulation of housing and mortgage markets", Quarterly report on the euro area 13 (2).
  7. MIP In-Depth Reviews: issues covered Main issues External sustainability ES, IE, FR, HR, HU Presistently large surplus DE, (NL, SE, LU) Price/non-price competitiveness BE, FR, IT, HU, SI, FI, UK, ES, HR, DK, LU, SI Housing and mortgage markets ES, NL, SE, UK, IE, HU Household indebtedness DK, IE, ES, FR, HR, HU, MT, NL, LU, SE, UK Corporate indebtedness IE, ES, HR, HU, SI, UK, LU Labour market BG, IE, ES Financial sector stability IT, ES, IE, SI Other issues Public debt, potential growth, subdued demand/low investment Unemployment, energy dependence, innovation and R&D, state-owned enterprise, networks, FDI, etc. 7
  8. Link between MIP and CSRs • Countries with imbalances received country-specific recommendations (CSR) with relevant policy responses • MIP relevance was signalled in the CSR legal document: basis was the discussion in IDR. • Five housing-related CSRs in 2014. Number of CSRs in 2013 and 2014, by policy area 0 5 10 15 20 25 30 Source: Commission services Fiscal Consolidation Long-term sustainability Taxation Banking Housing Access to finance ALMP & participation Wage setting Education Social polices Health care Childcare Innov. & competitiveness Competition Energy, networks Public administration Financial sector Public finance Labour market reforms Human capital and social policies Product market . reforms 2013 2014
  9. Conclusion  Main challenge: find the appropriate incentive structure for 9 the housing market  How to define "appropriate"?  Including an EU dimension in addition to national competence,  Focusing on existing biases towards the accumulation of imbalances,  Looking at broad housing incentives (incl. rental and mortgage markets),  Based on analytical work that can serve as a basis for policy discussion.  Positive recent trends:  Less demand-stimulating lending practices and tax incentives,  Refocus of affordable housing towards those most in need.
  10. Thank you!
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